In response to the stock market crash of 1929, the Banking Act of 1933, also known as the Glass-Steagall Act, put up a wall between commercial banking and investment firms. That wall stood for more than 60 years until it was torn down by the 1999 Gramm-Leach-Bilely Act, which allowed commercial banks to reap huge profits, but also resulted in financial institutions that were so large that, had they failed, they would bring down the entire economy with them. So when those banks began to crumble following the collapse of the housing bubble, we taxpayers were left with little option but to bail them out while our federally insured deposits were put at risk. Thus, Senator Elizabeth Warren from Massachusetts has introduced legislation that would reenact the regulations that were stripped away 14 years ago.

To make no bones about the nature of the bill, Sen. Warren has titled it the 21st Century Glass-Steagall Act [PDF], and states clearly in the introduction that the legislation is intended “To reduce risks to the financial system by limiting banks’ ability to engage in certain risky activities and limiting conflicts of interest, to reinstate certain Glass-Steagall Act protections that were repealed by the Gramm-Leach-Bliley Act, and for other purposes.”

The bill already has a bipartisan group of co-sponsors in Arizona Republican Sen. John McCain, Sen. Maria Cantwell (D-WA), and Sen.Angus King, an independent legislator from Maine.

In simple terms, the new Glass-Steagall Act would separate banks with FDIC-insured savings and checking accounts from “riskier financial institutions” like investment banks, insurers, hedge funds, and private equity firms.

The bill also specifies what activities are considered the “business of banking” to prevent national banks from engaging in risky activities, and bars non-banking activities from being treated as “closely related” to banking. In the decades leading up to the end of Glass-Steagall, the Office of the Comptroller of the Currency had allowed the divide between traditional banking and investment banking to be blurred by institutions who claimed that things like credit default swaps were simply part of the business of banking and not securities.

“Since core provisions of the Glass-Steagall Act were repealed in 1999, shattering the wall dividing commercial banks and investment banks, a culture of dangerous greed and excessive risk-taking has taken root in the banking world,” said Sen. McCain in a statement. “Big Wall Street institutions should be free to engage in transactions with significant risk, but not with federally insured deposits. If enacted, the 21st Century Glass-Steagall Act would not end Too-Big-to-Fail. But, it would rebuild the wall between commercial and investment banking that was in place for over 60 years, restore confidence in the system, and reduce risk for the American taxpayer.”

Sen. Warren concedes that recent efforts to rein in banks’ risky actions have been fruitful, but she contends that the nation’s largest banks still present a hazard to the economy.

“The four biggest banks are now 30% larger than they were just five years ago,” says the Senator, “and they have continued to engage in dangerous, high-risk practices that could once again put our economy at risk. The 21st Century Glass-Steagall Act will reestablish a wall between commercial and investment banking, make our financial system more stable and secure, and protect American families.”